Hi,
So I understand that for porportional consolidation that you just take your “share” of the assets and liabilities that belongs to you. However, the textbook doesn’t cover what happens when it comes to the equity portion. And also, does this also apply to the income statement as well where you take your “share” of the revenue/COGS/EBIT etc etc all the way down to NI? Thanks!
for proportionate consolidation you just assume a share of the firm is merged into your statement.
so as you say assets & liabilities are merged in. equity only sits on the balance sheet to balance assets + liabilities, so in effect it must be recalculated so everything adds up.
income statement is the same. i.e you must recalculate NI to make the sums work.
since this is normally straightforward, cfai would probably ask you to remove an intercompany transaction or something to make it more tricky.
But that’s my question.
If you add your share into the assets, and you add your share into liabilities, then you don’t need to do anything with equity since A = L +E so it balances naturally. Is this correct?
That’s correct dude! The only time you add anything to equity with when you have use full consolidation.